0
$\begingroup$

Currency fluctuates depending on supply and demand

In fixed exchange rate, any central banks could ties their currency to another country's currency or Gold price. Which, basically, still fluctuates

In what scenario would it be possible to create currency that is truly fixed? For example, create GGG currency that ties 1 USD at today's exchange rate

1 GGG = 1 USD at 9/28/2021

Means at any time onwards, will still be using the same exchange rate

$\endgroup$
8
  • $\begingroup$ Hi! Did you try to research this? Like did you look up "fixed exchange rate regimes"? $\endgroup$
    – Giskard
    Sep 28 at 13:32
  • $\begingroup$ @Giskard Hello, yes I did, however I found only examples tied to something that is also fluctuates (gold or other currency). Hence why I ask $\endgroup$
    – Lorenz
    Sep 28 at 13:42
  • $\begingroup$ It is not possible to create a currency with a fixed exchange rate to USD on 9/28/2021 because (1) if someone requests the exchange we can't travel back in time to give them the currency, (2) if the exchange rate was fixed only on that day that implies it is floating on all other days i.e. it's not actually fixed, and (3) there aren't 28 months in a year. $\endgroup$
    – user253751
    Sep 28 at 13:46
  • $\begingroup$ What I suggest with fixed exchange rate of USD in 9/28/2021 (equivalent to 0.86 EUR), means even IF in next 5-10 years real world currency fluctuate to 1 USD = 0.001 EUR, this 1 GGG currency will still hold the 0.86 EUR. Not possible even in digital (crypto)currency? @user253751 $\endgroup$
    – Lorenz
    Sep 28 at 13:55
  • $\begingroup$ @Lorenz Well that's just called pegging it to EUR instead of USD. You just define that 1 GGG = 0.86 EUR. Then if the exchange rate fluctuates to 1 USD = 0.001 EUR, now 1 GGG still = 0.86 EUR but 1 GGG = 860 USD $\endgroup$
    – user253751
    Sep 28 at 13:56
0
$\begingroup$

This is impossible.

You want a currency whose exchange rate to all other currencies is fixed. Say that today 1 USD = 0.86 EUR. You are asking for a new currency GGG where 1 GGG = 1 USD, and 1 GGG = 0.86 EUR, always and forever.

Let's suppose the USD crashes so that 1 USD = 0.001 EUR (1000 USD = 1 EUR).

Let's suppose I'm stuck with 100,000 worthless USD. It's only worth 100 EUR.

But luckily, it's not worthless! I can just exchange my USD for GGG; now I have 100,000 GGG. Now I can exchange my GGG for EUR. Now I have 86,000 EUR. Woohoo!

But wait, there's more! Now I can exchange my 86,000 EUR for 86,000,000 USD. Then 86,000,000 GGG. Then 73,960,000 EUR. Then 73,960,000,000 USD. Then 73,960,000,000 GGG. Then 63,605,600,000 EUR. After I run around the currency exchange shops a few more times, I'm a multi-quintillionaire!

At least, until the currency exchange shop runs out of EUR to give me. Then the currency exchange shop will start demanding more GGG before they'll give me an EUR. And they'll give lots of GGG to anyone who gives them back an EUR because they need more EUR and have too much GGG. And that changes the exchange rate.

$\endgroup$
4
  • $\begingroup$ Really enjoyed your answer, thank you. So there is no scenario possible for truly-fixed currency? $\endgroup$
    – Lorenz
    Sep 28 at 14:30
  • $\begingroup$ @Lorenz I have just shown you why the idea is basically nonsense $\endgroup$
    – user253751
    Sep 28 at 14:33
  • $\begingroup$ I am aware. Was asking if there is any other idea for possible currency that won't fluctuate $\endgroup$
    – Lorenz
    Sep 28 at 14:36
  • 1
    $\begingroup$ @Lorenz it is fundamentally impossible for the reason I have said. There is no idea. $\endgroup$
    – user253751
    Sep 28 at 14:36
-1
$\begingroup$

It's possible, as follows. Let's assume you make the GGG currency. So people come to you and give you $1 and you give them one GGG (assuming people want the GGG, that is). After a while there are X GGG in circulation and you have X dollars. Later, if someone would rather have dollars, they give you Y GGG and you give them Y dollars.

Note: if everyone decides they no longer want GGG, then they all sell them back to you in exchange for dollars. So now there are no GGG in circulation, and you have no dollars; but the exchange rate was fixed 1:1 until the very end.

$\endgroup$
2
  • $\begingroup$ From what I see you tied the GGG to follow USD rate, and USD itself fluctuate. It doesn't address question as how to make it truly-fixed $\endgroup$
    – Lorenz
    Sep 28 at 23:22
  • $\begingroup$ @Lorenz Yes the dollar fluctuates relative to e.g. the euro or the yen. But in my example the GGG is truly fixed to the dollar. Do you want the GGG to be fixed to a basket of currencies? $\endgroup$
    – Daniel
    Sep 29 at 12:37

Your Answer

By clicking “Post Your Answer”, you agree to our terms of service, privacy policy and cookie policy

Not the answer you're looking for? Browse other questions tagged or ask your own question.